IRN-BRU maker AG Barr has reported record annual profits but warns continued price deflation will make it difficult to maintain top line growth.

The Cumbernauld-based company said pre-tax profits for the 2015 year to January 25 rose 10 per cent to £41.9 million as sales rose 2.7 per cent to £260.9 million.

Barr said stripping out the impact of lost Orangina revenue, a contract it exited early from with Lucozade Ribena Suntory Group, year on year sales increased 3.3 per cent.

Barr has also booked £3.3 million in exceptional items for the 2015 year, the bulk of which relates to reorganisation costs and asset impairment charges from closing its Tredegar site and moving carton production to its new facilities in Milton Keynes.

On a comparative basis, including exceptional items, pre-tax profits were up 12.8 per cent to £38.6 million (2014: £34.2 million).

Barr had booked £3.8 million in exceptional items in the 2014 year.

Total IRN-BRU sales rose 1.6 per cent, having benefited from the “successful sponsorship of the Glasgow 2014 Commonwealth Games”, where Barr had directed “much of its brand activity, promotion and consumer communication”.

The group said it sold “just under £1million of IRN-BRU ice cream in the year, and IRN-BRU sales in England and Wales rose 5.6 per cent in the year, and sugar-free IRN-BRU sales rose 20 per cent in this market.

The group said sales in England and Wales, which now account for almost 60 per cent of Barr's total revenues, grew by 3.5 percent and international sales rose 7.9 per cent.

Barr said while its position in Scotland “remains extremely strong”, with sales up 1.2 per cent year-on-year, “significant future growth potential lies in the 'rest of the UK' and increasingly in the high potential international segment of our business”.

The group announced on Monday it has agreed a seven-figure football sponsorship deal in England, becoming the official soft drinks partner to the English Championship, League One and League Two.

Barr said its still drinks brands delivered a particularly strong performance with growth of 5.7 per cent, which was driven by “over 20 per cent growth in the Strathmore brand and Snapple which, although relatively small in total revenue terms, grew by 35 per cent”.

In carbonates, performance was “robust” and growth was “well ahead of the market” in IRN-BRU Sugar Free, Rubicon and Barr, though its Rockstar energy drink “grew more in line with the energy market at 5.2 per cent, following the very significant growth of 60 per cent in the prior year”.

Barr said a new 10-year exclusive deal agreed last year with US soft drinks giant Dr Pepper Snapple Group, “represents an opportunity to drive profitable growth across a number of markets”.

Barr said the Snapple deal, to sell, market and distribute the Snapple brand in the UK some EU territories, combined with its existing portfolio of brands focussed outside the UK, provides “exciting opportunities for new growth”.

The company also notes its acquisition of cocktail mixer maker Funkin Ltd post year-end, in a deal worth up to £21 million, “is a small but significant step into a new, high growth sub-category of the drinks sector”.

Barr added: “It also provides further incremental growth potential for the group, both in the UK and internationally, as well as the opportunity to enhance our position in the ontrade and hotel, restaurant and café hospitality market segments.”

In January Barr had reported sales had “slowed” in the third quarter against a “strong” first half, though it added profit performance was not affected by its decision in the second half, “not to participate in some of the more aggressive price promotion”.

However the group warns the UK soft drinks market entered “a deflationary phase towards the end of the year”.

Barr said overall the soft drinks market “remains challenging”, and warns continued price deflation make it more difficult to maintain top line growth.

The group is proposing a final dividend of 9.01 pence per share, taking the total dividend for the year to 12.12 pence, up 10 per cent on the previous year.

“Looking forward we will continue our approach of tight cost control, rigorous cash management and focus on execution whilst continuing to invest for the long-term in our brands, assets and people.

“Overall market conditions are expected to remain challenging.

“The U.K. soft drinks market is currently experiencing a period of price deflation which will, if sustained, make it more difficult for many businesses to deliver the top line growth of recent years.

“Whilst our year has started slowly, reflecting tough comparative trading and promotional phasing, we are confident that our management actions, combined with our proven business model, will enable us to further unlock the significant potential that AG Barr offers its shareholders this year and into the future.”